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Movie Gallery Buys Video Update Debt

ST. PAUL, MN-By buying locally-based Video Update's senior secured debt for 8 cents on the dollar, Alabama-based Movie Gallery hopes to add most of Video Update's 350 stores to its own chain.

By Jim McCartney | Updated on May 10, 2001

ST. PAUL, MN-Movie Gallery, an Alabama-based video rental chain, now appears to hold the fate of its competitor, locally-based Video Update, and has plans to add most of Video Update’s 350 stores to its own chain of more than 1,000 video rental stores. Movie Gallery says it paid a little less than $10 million for $121 million in senior secured debt that Video Update owed to a group of lenders headed by Banque Paribas.

In buying that debt from Banque Paribas, Movie Gallery is first in line to be paid from the assets of the St. Paul-based video rental chain. Since the debt appears to be far larger than the company’s assets are worth, Movie Gallery now has control over the fate of the company, says Bob DeLean, a securities analyst who follows Movie Gallery for Memphis-based Morgan Keegan & Co. Video Update has been reorganizing in bankruptcy court since last September, but has yet to propose a restructuringplan.

Movie Gallery, the third largest video rental chain in the industry, plans to close weak stores in the chain and convert the rest to Movie Gallery stores, DeLean says.

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